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1QFY22: Setting the tone

First quarter in-line; BUY on resilient outlook

1QFY22 core net profit of MYR112.6m was strong but within expectations at 29% of our/the street’s FY22 core earnings estimates. We maintain our BUY call and earnings forecast at this juncture. Despite the post-PP earnings dilution, our TP is raised to MYR4.72 (+5%) as we roll forward our valuation base year, albeit still pegged to an unchanged +2.5SD to the LT mean at 44x FY23E PER (40x FY22 previously). It remains our top Malaysian OSAT pick, premised on the RF division’s robust outlook and the potential leveraging of opportunities in China amidst the ongoing industry upcycle.

RF division drives outperformance

Key takeaways from 1QFY22 results: (i) excluding EIs of MYR5.7m, core NP grew 56%/12% YoY/QoQ respectively on the back of solid turnover (+24% YoY/19% QoQ) across all key segments; (ii) the RF division continued to drive growth (+38% YoY), underpinned by strong volume loading from its key customer ahead of major smartphone launches globally in 4Q21. Mobile device end-customers accounted for 65% of group turnover in 1QFY22 vs 63%/55% in FY21/20; (iii) its opto/generic divisions also posted a steady 4%/24% YoY growth with combined revenues of MYR168m.

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Expanding in China via JV with SMIC-backed VC firm

Separately, it has also announced a non-binding MOU with a venture capital firm (CFTC) backed by China’s largest pure-play foundry, SMIC to set up a JV entity focusing on providing OSAT services to the Chinese market. Under the terms of the agreement, it will contribute 100% of its equity in ATK and RMB463m (c.MYR301m), while CFTC will inject RMB749m (c.MYR488m) in cash and its’ 100% equity in YSIC (valued at c.MYR14m) into the JV. The resulting entity will be 55%/45% owned by INRI/CFTC respectively; though we view the synergistic JV positively, we are yet to account for future earnings accretion from the venture, pending operational visibility.

Backed by robust balance sheet for M&As

Following the completion of the recent PP exercise that raised c.MYR1b in July, Inari’s balance sheet has strengthened considerably. It has pared down all debts and excluding the c.MYR300m outlay for the CFTC venture (should it materialise), it still sits comfortably on net cash balances of MYR1.5b (43 sen/share). With a sizeable war chest for potential M&As and
a strong LT growth outlook for its RF segment, we opine that it is primed and well-positioned to capitalise on the industry upcycle. Reiterate BUY.